01.19.2010 / Looking for a Way to Consolidate Debt - The Answer is in Your Home
Are you one of the nearly 70 percent of Americans who are in debt? If so, you know the routine, piles of bills arriving in the mail each month from your various creditors. All of them have varying balances, minimum payments, due dates and, undoubtedly, high interest rates. It is a stressful scenario with seemingly no light at the end of the tunnel. What many people do not know is that the solution is right in your home. Debt can easily be consolidated into one balance with one easy payment, due date and, mostly likely, a lower interest rate by obtaining a home equity loan or line of credit.
"Debt can easily be consolidated into one balance with one easy payment, due date and, most likely, a lower interest rate by obtaining a home equity loan or line of credit."
Home equity loans and lines of credit allow you to use the equity in your home as collateral to consolidate your debt. “Equity” means the difference between the value of the home and the amount you owe. Home equity loans and lines of credit create liens against your home and will reduce the actual equity of your home.
Specific terms of home equity loans and lines of credit will vary by creditor and the financial circumstances of each consumer. The information below will give you a general understanding of the difference between the two types of loans.
Home Equity Loan
A home equity loan is a loan that is taken against your home’s equity in a one time lump-sum which is repayable over a set amount of time at a fixed interest rate. It usually requires a set schedule of equal payments over the life of the loan.
Home Equity Line of Credit
A home equity line of credit is a revolving credit line in which the equity in your home is used to calculate a credit limit which may be reached and repaid repeatedly during a set period of time or “draw period” – usually a set number of years. Home equity lines of credit typically involve a variable interest rate based on a publicly available index such the prime rate or US Treasury bill rate. The minimum payment due each month is based on the revolving balance at the end of the billing cycle.
Whether you choose a home equity loan or line of credit, it is important that you are smart when it comes to consolidating debt. To avoid increasing your debt load, consolidate your debt to a home equity loan or line of credit and cease using your credit cards, store cards etc. and focus on repaying your home equity loan or line of credit.
Other Common Uses of Home Equity Loans and Line of Credit
Home equity loans and lines of credit are more than a debt consolidation tool. They may also be used to pay for large ticket items such as home improvements, medical bills, college education or big vacations.
Are you interested in a home equity loan or line of credit from First National Bank? Contact a Home Mortgage Specialist today at 402-602-5300 or 877-687-5626 to learn more. Click here to locate a mortgage specialist near you.